Hi,
Can anyone help me understand the log-normal distribution? I have a dummies guide to probability which covers a lot of useful things but not the log-normal distribution and I'm embarrassed to say I could use it for work and would like to understand it more intuitively.
I have another book which says:
"..it is not the share prices themselves but the return on the share prices that follows a normal distribution. More technically a variable follows a lognormal distribution if its natural log follows a normal distribution."
I have taken this to imply that
i) The share price returns can be equated to the differences between the values of a random variable, and that the ranom variable is the share prices,
ii) The difference between the values a random variable can have is defined as its natural log (is this always true?),
iii) The share prices follow a lognormal distribution, the differences follow a normal distribution (and that this is true by definition).